Homeowners Association Forecloses on Vet for $340

Sometimes homeowners associations get a bad rap. As nettlesome as some of their bylaws may be, the organizations, after all, never force anyone to live in their neighborhoods. If someone chooses to live within an HOA community, apologists say, they should be prepared to abide by its rules and pay the penalties if they don't.

But there are times when HOAs seem draconian in enforcing their statutes -- situations in which, to many, the punishment doesn't seem to fit the crime.

"I don't understand it. I never seen a situation like this in all my life," McCray (pictured above in his house) told the Florida newspaper. "Nobody didn't give me this house. I bought it with blood, sweat and tears."

On Jan. 3, a judge ordered that McCray's home, which he owns in full, be sold because the vet had failed to pay the Vistas Homeowner Association of Clermont, Fla., an assessment fee in 2010. At the time of the judge's ruling, the amount that McCray owed had snowballed into $4,272 in late fees, interest and legal costs.

A Questionable Incentive

If the HOA sells McCray's home, it will recover its assessment fee, interest and late fees that accrued on the original debt, and all the expenses it paid to foreclose on McCray, says Robert Freedman, a real estate attorney for the law firm Carlton Fields. The bulk of those expenses are attorneys fees, which are paid to the lawyers who advanced the home toward foreclosure.

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McCray's predicament sheds light on a financial incentive to lawyers in states that allow HOAs to seize residents' home. In such states, there's potentially more profit for lawyers in advising HOAs to foreclose on residents, rather than trying to negotiate a payment plan. And since the fees are essentially coming out of the residents' pockets -- not the HOAs' -- through the sale of the home, there's possibly less oversight.

If the resident owns his home (as McCray does), the HOA receives from the sale of the house the debt it's owed by the homeowner and the amount it owes lawyers for litigating the foreclosure. The remaining proceeds of the sale go to the foreclosed-on homeowner. So even if McCray were to lose his home, it should be noted, he will still receive at least some cash for it.

Unless a court concludes that an attorney has grossly overcharged for his services, Freedman says, he can most likely count on collecting what he is owed: The asset -- the house -- is more than enough to cover the bill, even if it is exorbitantly high.

After McCray failed to pay his assessment fee in 2010, he agreed to pay $100 a month to meet his debt obligation once it reached about $2,400. But his debt still reportedly continued to grow, as the HOA heaped on legal expenses.

The HOA may charge a fine for each day that the account is in default, and if the fine reaches $1,000, it may claim a lien against the resident's property, the blog also says. It adds that a resident is then responsible for paying costs associated with hiring attorneys to handle liens, collections and foreclosures.

How $300 Turned Into $4,000

Carol Piering, a representative of Community Management Professionals, the property management employed by the Vistas Homeowner Association, emphasized that her client -- which, like other HOAs, is nonprofit -- has made every effort to work with McCray to draft a payment plan.

"The board has no interest in owning the home. They don't want to see the homeowner out of his home at all," she said.

Piering confirmed that the HOA had, in fact, negotiated a payment plan with McCray in the past but could not say why McCray's debt reportedly continues to accumulate. She also couldn't say how McCray had racked up, in less than two years, $1,000 from late fees and interest on what was originally just a $340 debt. The answer is relevant since $1,000 is the amount at which the HOA was allowed to tack on legal bills -- the reason the debt is now above $4,000.

The octogenarian reportedly wasn't able to make the original payment because of medical bills that resulted from a heart attack and an operation on his gallbladder. On March 13, the vet's home is scheduled to be sold.

A Way to Hold On

While the HOA's response to McCray's missed payment may seem excessive, McCray can still save his home by paying his debt to the HOA and all the costs associated with the foreclosure, says Tim Iamaio, an office manager with the Price Law Firm in Orlando, Fla., which specializes in foreclosures. And if McCray owns his house in full, he should be able to borrow against it to make the payment, Iamaio says.

He says that he sees cases like McCray's, where neglected HOA payments spiral into foreclosures "all the time," even though -- as unpalatable as it may be to the homeowner -- the situation is relatively easy to resolve by just paying the amount asked. If the homeowner can afford it, that is.

"We kind of have a saying," he says. "It's kind of the ostrich mentality -- where people don't want to deal with it -- and they kind of stick their head in the sand and hope it goes away."

Attorney Freedman, also points out that HOAs have an obligation to other residents to collect assessments and other fees.

"Even though it's a small amount, the association really has to be able to protect its interest because if nobody pays, they can't maintain the community and its property, which can lead to a decrease in property," he says.

According to Lauren Ritchie, who originally reported McCray's story for the Sentinel, the community has indicated that, at least in this case, it's more interested in keeping McCray around than in seeing him lose his home. It's also reported that the veteran recently received enough in donations from neighbors to pay his full debt. "The matter is expected to be concluded next week," Ritchie said in an email.

Columbus hit its median home value peak in the first quarter of 2006. Since that time, home values have declined a relatively modest 12.4%, including a 3.4% drop last year. By the second quarter of 2012, Fiserv projects that homes in the area will lose another 2.3% of their value. Median family income in Columbus is above the national average, and unemployment is just 8%, a full percentage point less than the national average. Despite the fact that things don’t look so bad for the Columbus housing market compared to other regions, the city foreclosure rate still increased by 32% last quarter. A total of 2,273 homes were foreclosed upon during that time.

There is arguably no single housing market with a worse long-term outlook than southwest Florida, and the Cape Coral-Fort Myers region is the worst of these. Housing prices in the have already dropped 59.3% from their peak, and Fiserv project them to decline another 12.2% by the second quarter of next year. According to Corelogic, 47% of the homes in the Cape Coral-Fort Myers area are worth less than their mortgages because of declining values. Foreclosures have increased 35% in the last quarter, and with no sign of recovery in the immediate future that trend may worsen in the coming months.

As of last month, Vallejo-Fairfield had the second-highest foreclosure rate in the country, with one out of every 51 homes being foreclosed upon in the third quarter of this year. This was a 36% increase in foreclosures from the second quarter. Home values have dropped 7.5% in the past year and are projected by Fiserv to drop an additional 4.9% by the second quarter of 2012. A remarkable 53% of homes in the region are worth less than their mortgages. This is the seventh highest rate of homes with underwater mortgages in the country.

Fresno’s economy has continued to suffer since housing prices began to drop in 2006. It currently has an unemployment rate of 14.9%, which is one of the highest in the country. Home prices peaked in the first quarter of 2006 and have been decreasing since. The metropolitan area also has one of the highest underwater mortgage rates in the country, with a negative equity share of nearly 46%. In the last year alone home prices have dropped 11%.

More than 1,000 homes were foreclosed upon in the Palm Bay-Melbourne-Titusville region last quarter, a 44% increase from the previous three-month period. Nearly half of the region’s homes are worth less than their mortgages. With Fiserv projecting home values would drop 7.1% by next year and another 4.9% the year after that, things may just get even worse.

Jacksonville has experienced a quarterly increase in foreclosures of nearly 50%. Home prices have dropped 39.1% since their peak in the second quarter of 2006. The metropolitan area’s negative equity share also exceeds 46%, making it among the worst in the country for underwater mortgages. Home prices are expected to decrease another 10.7% by the second quarter of 2012.

Nearly 2,000 homes were foreclosed upon during the last quarter, a 55% increase from the previous three months. Unlike many of the regions on this list with accelerating home foreclures, Cincinnati’s local economy is doing fairly well. Home prices are only down 15.9% from their peak in the first quarter of 2006. Unemployment and median family income are both better than average. One possible explanation for this recent increase may be that nearly a third of the total decline in home value since the peak has occurred in the past 12 months.

The Sarasota-Bradenton-Venice metropolitan area has seen the third largest increase in the country in foreclosures in the third quarter. However, only 1,673 homes out of the 311,475 on the market were foreclosed upon. The housing market has suffered a great deal since housing prices peaked in the first quarter of 2006. Since then, overall home prices have dropped 51.4%.

The Boston metropolitan area is considered to have a particularly resilient housing market. In the most recent quarter, however, foreclosures have increased 67%. Home prices have only dropped 15.8% since they peaked in the third quarter of 2005. The national average is -32.3%. From the second quarter of 2010 to the second quarter of 2011, home prices dropped a mere 1.7%.

Albuquerque’s housing market, like Boston’s, is relatively healthy. While home prices decreased 32.3% nationally after their peak, home prices in Albuquerque only decreased 14.9% since they peaked. Regardless, foreclosures have recently skyrocketed. In the third quarter of 2011, the number of foreclosures in Albuquerque increased 151%. According to New Mexico Business Weekly, the lack of job creation in the area has been a major contributor to this problem.